Tournament Theory1. Tournaments are competitions between peers to achieve a promotion to a higher rank along with the pay and perks that go with it.2. Tournaments are likely to result in a “winner take all” outcome.3. Managers who enter the tournament must forego other alternatives (such as jobs with other firms, start own business, receive more pay with an alternative opportunity) to compete in the tournament.
4. A high pay differential (such as the CEO receiving much greater pay than any subordinates) attracts more “players” to the tournament.5. Players must “invest” (work long hours, accept less pay, show loyalty to their boss) to enter the tournament – firm captures value from these players, more than what it gives up to the “winner” for the prize.
Advantages of Tournaments Easier to observe relative performance saves on measurement costs Relative compensation eliminates the effect of luck when everyone has the same luck (e.g., bad economy) Variation in luck (e.g., getting good supervisor) must be considered
Disadvantages of Tournaments Workers could collude to shirk & split winner’s prize. Reduced by having more workers in competition hiring externally Reduces worker cooperation Uneven distribution of ability causes workers to shirk (expectancy)
Victor Vroom’s Expectancy TheoryThe theory proposes that a personsbehavior occurs because ofexpectations as to the outcomes of thatbehavior.The key elements to this theory arereferred to as following-1. Valence (V)2. Instrumentality (I)3. Expectancy (E)
Valence The term valence refers to the strength of an individual’s performance for receiving a reward . It is an expression of the value he places on a outcome or reward. Valence is negative if the individual prefers not attaining an outcome compared with attaining it. Valence is zero if the individual is indifferent to the outcome. Valence is positive if the individual has the strong preference to the outcome. The Valence of the individual must be positive if motivation were to take place.
Instrumentality The Instrumentality refers to the belief that the first level outcome will lead to the second level outcome . The value of Instrumentality varies from 0 to 1. If an employee sees that promotions are based on performance, instrumentality will be rated high.
Expectancy Expectancy refers to the belief that an effort will lead to completion of a task. The value of Expectancy varies between 0 to 1. If an employee sees no chance that effort will lead to the desired performance, the expectancy is zero. On the other hand if the employee is confident that the task will be completed , the expectancy has a value of 1.